WEEKLY ENERGY RECAP: Oil demand set to falter till 2022 as virus uncertainty mounts

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Updated 16 August 2020

WEEKLY ENERGY RECAP: Oil demand set to falter till 2022 as virus uncertainty mounts

Crude oil prices remained stable for the third month in a row with Brent crude moving in a tight range between $40 and $45 per barrel since early June. 

Brent advanced to $44.80 per barrel by the end of the week as WTI also gained to $42.01 per barrel.

The big three global oil outlooks published by OPEC, the International Energy Agency and the US Energy Information Administration were all bearish and based on the view that demand may not recover to 2019 levels until 2022 at the earliest.

Transport fuels were seen as especially vulnerable with jet fuel and gasoline the hardest hit by pandemic-related lockdowns.

However OPEC’s latest monthly report suggests that global refining margins may be trending upwards back into positive territory, particularly in Asia.

In general, the sharp downturn in refined petroleum product prices was largely driven by an alarming growth in product inventory levels even as lockdowns eased worldwide.

The IEA reported the steepest downgrades for the second half of this year, driven largely be the continuing weak demand for jet fuel.

More positive signs of recovering demand in the US and Asia should have boosted prices much higher than they have but instead the market remains focused on persistent uncertainties about a continued rise in COVID-19 cases and the potential for a return of lockdowns in the winter. 

The latest OECD data show that commercial oil stocks rose by 24.3 million barrels for the fourth consecutive month to 301.5 million barrels higher than a year earlier and 291.2 million barrels above the latest five-year average. Refined product inventories may remain elevated due to weak public transportation and air transport fuel demand. However the outlook may be more positive for heating oil and naphtha that receive some support from sectors less affected by the pandemic such as home heating and petrochemicals.


Saudi Arabia looks to cut spending in bid to shrink deficit

Updated 01 October 2020

Saudi Arabia looks to cut spending in bid to shrink deficit

  • Saudi Arabia has issued about SR84 billion in sukuk in the year to date

LONDON: Saudi Arabia plans to reduce spending next year by about 7.5 percent to SR990 billion ($263.9 billion) as it seeks to reduce its deficit. This compares to spending of SR1.07 trillion this year, it said in a preliminary budget statement.

The Kingdom anticipates a budget deficit of about 12 percent this year falling to 5.1 percent next year.

Saudi Arabia released data on Wednesday showing that the economy contracted by about 7 percent in the second quarter as regional economies faced the twin blow of the coronavirus pandemic and continued oil price weakness.

The unemployment rate among Saudis increased to 15.4 percent in the second quarter compared with 11.8 percent in the first quarter of the year.

The challenging headwinds facing regional economies is expected to spur activity across debt markets as countries sell bonds to help fund spending.

Saudi Arabia has already issued about SR84 billion in sukuk in the year to date.

“Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it to tap into growing domestic and international demand for Shariah-compliant fixed income assets,” Moody’s said in a statement on Wednesday. 

“This, in turn, has helped diversify its funding sources compared with what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year,” the ratings agency added.